CapitaLand Commercial Trust (CCT) announced its 3Q18 results this morning which came in within our expectations. Gross revenue and NPI jumped 35.6% and 37.3% YoY to S$100.5m and S$80.4m, respectively.

Growth was driven largely by contribution from the acquisitions of Asia Square Tower 2 (AST2) and Gallileo, but partially offset by divestments. DPU dipped 6.8% YoY to 2.20 S cents as a result of an enlarged unit base arising from equity fund raising exercises.

For 9M18, CCT’s NPI rose 19.2% to S$235.3m, while DPU of 6.48 S cents represented a decline of 6.4% and formed 73.3% of our FY18 forecast.

Committed rents (psf per month basis) at AST2, CapitaGreen, Capital Tower, Six Battery Road and One George Street (OGS) were S$11.00-S$13.00, S$12.50-S$12.60, S$7.20-S$8.90, S$10.00-S$14.10 and S$9.10- S$11.80, versus average expired rents of S$13.10, S$12.16, S$9.40, S$11.95 and S$9.00, respectively.

We believe this implies that there were negative rental reversions at AST2 and Capital Tower, while positive rental reversions were registered at CapitaGreen and OGS.

Singapore’s office market continues to gain traction, as core Grade A CBD office rents rose 3.5% QoQ to S$10.45 psf/month in 3Q18 following the 4.1% sequential increase in 2Q18, based on CBRE data. This augurs well for CCT’s leasing momentum ahead, in our view.

We currently have a HOLD rating and S$1.69 fair value estimate.

Source: OCBC Research - 26 Oct 2018